STATISTICAL INVESTIGATION OF THE EFFECTS OF MAIN MACROECONOMIC VARIABLES ON STOCK MARKET PERFORMANCE IN NIGERIA USING ARDL MODEL

Abstract

The effect of the main macroeconomic variables on the stock market performance has been of
great concern recently. This has necessitated divers conference of researchers and government
agencies reforms geared towards improving the stock market performance and a stable growth of
the Nigeria economy. The study seeks to examine the effect of Inflation Rate, Interest Rate and
Exchange Rate on the performance of the stock market using ARDL Model on data obtained
from the Central Bank of Nigeria (CBN) statistical bulletin for the period of 1985-2018. The
study employed the Augmented Dickey Fuller test to test for stationarity among the variables,
Johensen cointegration technique is use to determine the order of cointegration. Granger
causality test was used to check for causal relationship among the variables and then the
Autoregressive Distribution Lag (ARDL) Model to check for a short-run or long-run relationship
among the variables. The results indicate that all the variables are non-stationary at levels, but
became stationary after first differencing. The three macroeconomic variables were also
cointegrated. There is a causality runs among these variables. The ARDL Model suggested a
short and long-run relationship between stock market performance and the three macroeconomic
variables. The CUSUM and CUSUMSQ plots (serving as a stability test) are within the critical
bounds meaning that the model is stable. The selected macroeconomic variables were found to
have a significant effect on the Nigeria stock market performance. The implication of the
findings is that a decrease in inflation rate and other variables will improve the performance of
the stock market in Nigeria both in short term and long-term. The study therefore recommends
among others that the investors should pay more attention to the macroeconomic variables and
not only the stock market performance.